Bank of England urged to keep interest rate at 0.5pc

A slew of downbeat economic data has bolstered the case against raising
interest rates on Thursday, according to leading business groups.

Economists pushed back their expectations of a rate rise to the end of the year – many had thought May could be the turning point for the Bank of England's Monetary Policy Committee (MPC).Photo: Getty Images

The British Chambers of Commerce and the Institute of Directors (IoD) have urged policy-makers to keep interest rates at the historically low level of 0.5pc, claiming any increase this month would damage economic recovery.

Figures published on Wednesday showed a slowdown in the construction sector, sluggish lending data to consumers and homebuyers, and falling house prices.

The Markit/CIPS construction purchasing managers' index fell more than expected to 53.3 in April, from 56.4 in March. Anything above 50 represents growth.

Graeme Leach, chief economist at the IoD, said: "A rate rise would do more harm than good. The source of inflationary pressure in the UK is either fiscal (higher VAT) or global (commodity and oil prices), and so a rate rise would do little to alleviate these pressures."

The Government's deficit-cutting plan was also called into question when Rachel Lomax, a former deputy governor of the Bank of England, urged George Osborne to lessen the burden of front-loaded budget cuts. Speaking at a Fathom Consulting event on Wednesday, she said: "I would be telling George Osborne to look for opportunities to re-profile fiscal austerity over the next few years."

Her comments came as Bank of England data showed consumer lending growth slowed to £0.1bn in March from February's £0.8bn.

However, Sir John Gieve, fellow former Bank of England deputy governor, said interest rates should rise this month, echoing the call of three current members of the MPC at April's meeting.

Separate figures showed the majority of pay rises are at half the rate of retail prices index (RPI) inflation. According to Incomes Data Services, the typical pay rise of 2.5pc held steady in the three months to March. RPI inflation stood at 5.3pc in March.

Elsewhere, fears are growing that the falling standards of living will undermine staff morale, according to the Chartered Institute of Personnel and Development (CIPD). A fifth of workers are worried they might lose their jobs, a CIPD survey revealed.